Question

Use the following information to complete this problem:

Sales revenue	$175,000
Interest income	2,000
Cost of goods sold	60,000
Salary to owners Jack and Jill	40,000
Employee wages	15,000
Depreciation expense (using IRS tables)	10,000
Supplies expense	7,500
Charitable contributions	5,000

Jack and Jill are owners of UpAHill, an S Corporation. They own 25 and 75 percent, respectively.

What amount of ordinary income will be reported on Jack's Schedule K-1?

What amount of ordinary income will be reported on Jill's Schedule K-1?

Answer 1

Ordinary income = Sales – COGS – Salary to owners – Employee wages – Depreciation – Supplies – Charitable contribution

= $175,000 – $60,000 – $40,000 – $15,000 – $10,000 – $7,500 – $5,000

= $37,500

Ordinary income reported on K= 1 schedule of Jack = $37,500*25%

                                                                                   = $9,375

Ordinary income reported on K= 1 schedule of Jill = $37,500*75%

                                                                                  = $28,125